The holiday season can be an expensive one. By the time the last gift is opened, and the final cookie is eaten, many Americans are in desperate need of a spending reprieve. Luckily for them, the New Year is the perfect time to create some financial resolutions to bring about change. If your wallet has taken a hit this past year, and you need some assistance in creating resolutions to help manage your money, consider some of these financial resolution ideas.
Start a Budget…and Stick to it
The easiest part about trying to save some money is creating a budget. The hardest part is sticking to that budget you created. On average, people who make a budget as part of their New Years resolution stick to it for only 2-3 weeks. Then, whatever the reason is – they lose interest, become frustrated, aren’t seeing the savings – they are back to their old spending habits. Don’t let this be you. Make this year different. Instead of breaking down and ignoring your budget after a few weeks, stick to it and follow through until you have reached your savings goals or form new financial habits.
The key to creating a good budget is to build it around the monthly necessities (groceries, rent, etc.). The classic 50/30/20 rule is to spend 50 percent of your monthly budget on these necessities, 30 percent on discretionary spending, and 20 percent on savings. To help ensure that you follow through on your budget, make a deal with yourself. If you can consistently stick with your budget throughout the month, set some of that discretionary budget aside and save up for a weekend trip, or a new bike or jacket — just a little something to reward yourself for adhering to your budget.
Get Rid of Your Debt
For many people out there, getting rid of their entire debt in one year is not feasible. However, you can still take steps to create a consistent plan that will enable you to get rid of the student loan, credit card, or any other high interest rate debt you may have, in a timely manner. Making the commitment to yourself to make a sizable dent in your debt, and then seeing that goal reached, is a very gratifying feeling.
A great approach for this resolution is to sit down and review all the outstanding debt you have. Work towards paying off high interest rate debt first. Sticking to your budget will help you keep tabs on this resolution. Apply the extra you have towards the debt to pay it down more quickly.
Increase Retirement Savings
Another resolution that can be aided by the creation of a smart budget, is adding to your retirement savings. The extra savings you realize when you stick to a budget, can be used to increase your 401(k) deferral or saved in an Individual Retirement Account(IRA) which may offer additional tax benefits. You may have questions on retirement planning, so enlisting the help of a financial professional or tax planner is a good move to make.
Reduce Pricey Habits
As you are creating your list of expenses for your budget, look for areas which could be reduced or eliminated altogether. These may include shopping (other than groceries), entertainment expenses, getting your hair or nails done, having a gym membership (that rarely gets used) or eating out more than your eat at home. We have all heard the daily coffee example and how much could be saved if you avoid the pricey coffee at the local café and instead choose to make it at home, or even drink the free coffee offered at work.
These are all expenses, when reduced or eliminated, could not only be financially beneficial, but could create better health habits as well. You shouldn’t have to give up everything you enjoy, but you may skip a few weekends out or go a little longer between haircuts, and you may still see the savings.
Create an Emergency Fund
According to Yahoo Money, one in four Americans have no retirement savings and those who are saving are lacking a comfortable amount of savings. If you fall into that category or don’t have as much saved for emergencies as you’d like, then now is the time to start trying to set aside some money for such a fund. A good rule of thumb is to look at your monthly expenses and then multiply it by how long you estimate it would take you to find a new job if you were let go from your job (typically in the 3 to 9 month range).
Even if you are wealthy, it is important to create an emergency fund. A best practice is to have 12 months of living expenses in cash (checking, savings, money market, etc.) This allows you to draw from your cash reserves instead of selling investments in a down market. When stock market recovers, use the income off of your investments to rebuild your cash reserves.
Sell Some Items
As you are getting your financial live in order, it may be a perfect time to look at getting rid of all the extra clutter in your home. Old clothes, knick-knacks, kid’s toys, furniture that doesn’t get used, etc. is all fair game for selling. The question you need to ask yourself is whether you can live without that item. If the answer is yes, then it’s time to get rid of it. While it may be hard to get rid of some items, the extra money and space will certainly be worth it.
Work with a Trusted Financial Professional
At Trust Point, our experienced team works with individuals and families to customize a plan specific to the clients’ retirement or financial goals. We can act as your advocate on a variety of wealth-related issues so you feel at ease knowing where your financial future is headed. Give us a call today or visit one of our three office locations: La Crosse, Eau Claire, or Minneapolis.